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KHON2, KITV, Hawaii News Now Face Uncertain Future

Stations grapple with new business models to survive

June, 2011

Local television news was once a great way to make money, but now its future is as clear as 3-D movies without the glasses.

Revenues from advertising sales are up, but nowhere near what they were in the glory days before the recession. The Internet and mobile devices are areas for growth but pose challenges and costs, and little revenue, so far. And, the legality of Hawaii News Now, the two-year experiment in shared services, depends on an upcoming federal decision.

“With the growth of Web and mobile platforms and all the big changes that have happened in Hawaii in the past several years, anyone who thinks they’ve got this business figured out is fooling themselves,” says KITV president and general manager Andrew Jackson.

Despite the plethora of online and mobile news options, nearly two-thirds of Americans still rely on TV for local news, according to the 2009 People and the Press Survey Report from the Pew Research Center.

But the Hawaii industry has changed dramatically since the days of locally owned stations, newsrooms filled with reporters, and all the day’s top stories culminating in the 6 and 10 p.m. newscasts. Today, Mainland corporations own all of Hawaii’s network affiliates; there are fewer reporters and other employees; and you can watch local news from 5 to 8 a.m., and at 5, 6, 9 and 10 p.m.

All of those newscasts mean there is money to be made in ad sales. But the recession slashed revenues and the stations laid off newsroom staff. Then, in 2009, came the bombshell: Alabama-based Raycom Media, owner of KHNL and KFVE, and MCG Capital, which owns KGMB, announced they were consolidating operations. That resulted in about 70 more layoffs and the closure of the landmark KGMB station on Kapiolani Boulevard. Raycom CEO Paul McTear said the shared-services agreement (SSA) would help secure the future of the three stations, which had become less profitable.

From 2007 to early 2009, Hawaii News Now general manager Rick Blangiardi estimates overall advertising revenue in the state plummeted nearly 30 percent. Given that reality, Hawaii could no longer support five separate major stations, McTear said at a 2009 press conference, adding that the SSA would mean better coverage and more stories of local, national and international importance. Two months later, on Oct. 26, the three stations launched their first joint newscast as Hawaii News Now.

“Combining our resources and consolidating,” Blangiardi says, “resulted in a much larger, more dynamic newsroom with a real enhanced capability to cover the stories of the day.”

Soon after the launch, the Media Council of Hawaii, a nonprofit watchdog, filed a complaint with the Federal Communications Commission. The complaint said the SSA was a breach of the public trust and a violation of FCC rules that prevent one entity from owning or controlling two of the top four stations in a single market. The complaint also said the consolidation diminished the quality and diversity of news.

Raycom, which owns or operates 46 stations nationwide, says the SSA is an operational arrangement – not an ownership change – and, therefore, does not violate the FCC rules. University of Hawaii journalism professor Gerald Kato, who is a member of the media council, isn’t buying it.

“They’ve created this fiction that they’ve maintained separate operations when MCG Capital is like a silent partner and Raycom runs the show,” Kato says. “What they’ve actually done is formed a media cartel that controls about 45 percent of the marketplace.”

Blangiardi declined to comment on issues concerning the media council’s complaint because a ruling by the FCC is pending. McTear was not reachable for comment.

Janice Wise, of the FCC’s Media Bureau, says the agency does not keep statistics on how many stations nationwide are part of SSAs, “but they are not unusual and are becoming more common.”

Kato, himself a former Honolulu Advertiser and KGMB and KITV reporter, says there are variations of SSAs across the U.S., but the one involving Raycom and MCG is probably one of the more “egregious.” “These kinds of combinations are basically duopolies – one company owning two stations. In this case, it’s a triopoly.”

Chris Conybeare, president of the media council, says the FCC is collecting information on the impact of the SSA and the financial relationship among its parties, and is moving toward a decision.

Improving coverage

Robert Picard, a leading media economist and the director of research at the Reuters Institute for the Study of Journalism at Oxford University, says the emergence of SSAs has been driven by economics. However, the agreements are generally not made to reduce expenses, but “to improve coverage after the bottom-line decisions have already been made and it becomes evident that coverage and quality (from the individual stations) are becoming thin,” Picard explains.

Blangiardi has reiterated, time and again, that the SSA was not about cost-cutting or greed. “It was about consolidating and creating something better as opposed to what we were left with independent of each other.”

In 2002, Blangiardi headed both KHON2 and KGMB, which had the same owner then and separate newsrooms. He says HNN spends more money now to sustain its combined operation than he spent back then to run KHON2 and KGMB separately.

“Are we saving money? It all depends on how you look at it,” he says. “We’ve put a tremendous investment in the new technology required to broadcast in high-definition, we’ve got a really nice fleet of trucks downstairs, new cameras, sound equipment. In some cases, there was some redundancy (when we consolidated), so in that sense it provided a cost savings, but not much.”

When asked how the SSA has impacted the bottom line, Blangiardi would only say that 2010 was a solid year and that HNN achieved its numbers. “This was by every definition an exceptional success, qualitatively and quantitatively,” he says.

Among traditional media, local TV had the best year financially in 2010, according to the State of the News Media 2011, a national report by the Pew Research Center. Nationally, revenue rose about 17 percent, thanks in part to a 77 percent increase in auto advertising and a record $2.2 billion in political advertising.

If you look back 10 years, the only revenue for local TV was broadcast advertising. Today, new revenue streams include online and mobile, though broadcast advertising remains the dominant source, averaging $60 million a year in local TV advertising. KITV, HNN and KHON2 each reported increases in their core ad sales for 2010 and, before the March 11 tsunami, each had projected low, single-digit growth for this year.

The big challenge for TV is how many people are watching – or not watching – the ads that pay for it all. That people use the bathroom, talk, get a snack or mute the sound during commercials is nothing new, but the use of time-shifted watching is up. According to Nielsen, time-shifting and DVR playback account for 23 percent of all TV viewing in America, and that number has been growing for years.

Steve Sternberg, a national consultant on TV audience and programming, says the bulk of time-shifted viewing via DVRs includes fast-forwarding through commercials. Sternberg says Nielsen’s claim that 40 percent of viewers still watch commercials during playback is ridiculous, and suspects the actual figure is much less.

Another hurdle for advertisers, Sternberg says, is TV’s aging viewers. The median age is 51 for viewers of the four major networks – ABC (KITV), FOX (KHON), CBS (KGMB) and NBC (KHNL). Sternberg says that’s the oldest since he began analyzing median age more than a decade ago. It’s also the first time the networks’ median age was outside most advertisers’ targeted 18- to 49-year-old demographics, causing many of the advertisers to rethink their strategies.

KHON2 general manager Joseph McNamara says that, from a station owner’s perspective, SSAs make sense. “If you think about it, if you have a couple of several-million-dollar news operations and you eliminate one of them, that’s several million dollars to your bottom line just in news services,” he says. “Sales is another area where you can potentially bring in more money and, maybe, you need fewer technical and support staff. So, absolutely, there are savings and it makes good business sense. I just think it’s how you present it and how you monetize it.” In fact, he says, it’s possible for stations to share some services – and save money – yet maintain separate editorial voices.

What’s happening at HNN is not rocket science, says Kato. “This SSA was a good way to maximize profits while cutting costs; I don’t think anybody can deny that. From the businessman’s perspective, competition isn’t good because it hurts his bottom line and means it’s harder to make money. But competition in news makes for better journalism and a more informed community.”

Kato says TV stations often overlook the fact that the airwaves they broadcast on belong to the public. “In that sense, they have an obligation as licensees to operate in the public interest. I understand the realities of the world and that the economy is bad right now, and owners aren’t making the kind of profits they once were, but I don’t think the public is obligated to, in effect, subsidize Raycom, or any other media company, to guarantee them a sizable profit. These owners say they’re not making money, but is it just that they’re not making enough money? There’s a big difference.”

More or better news?

Blangiardi contends that HNN is stronger and better than ever, and he believes the station has “absolutely” accomplished what it set out to do.

“Look at any newscast on our stations; look at the people who are doing the news; look at the story count; look at the quality of what’s being presented to the people of this state – the intelligence behind it – that speaks for itself every day. We’re very transparent, easy to watch, easy to find.”

Local critics disagree that HNN is providing better news than its predecessors and they are backed up by a report from the University of Delaware’s Center for Community Research and Service. The study, released in February and called, “Local TV & Shared Services Agreements: Examining News Content in Honolulu,” says the SSA has harmed the diversity, competition and localism of Hawaii’s TV news. Prof. Danilo Yanich and his team, working independently of Media Council Hawaii, say they analyzed the daily newscasts of Hawaii’s five TV news stations before and after the SSA. They say they chose to study Honolulu because it was the only U.S. market in which a community group filed an official FCC challenge to an SSA.

The team analyzed individual stories, comparing the distribution of topics, coverage of local stories and duration of stories. They found that after the Hawaii SSA, the number of stories and the amount of time devoted to public issues, such as housing, education, health and the environment, declined for the stations involved in the agreement. The same decline happened at KITV and KHON2.

“The most significant finding is that two stations that were part of the three-station SSA group simply duplicated their newscasts through the mechanism of simulcast,” Yanich wrote in the report.

The research team also found the “package presentation mode” of telling TV news stories, in which a reporter and camera person go to the scene of the story to investigate and shoot video, was cut in half by KGMB, KHNL and KFVE and replaced with less expensive presentations, such as voiceovers by anchors. According to the report, HNN covered fewer stories with a local connection than KITV and KHON2. (Read the full report at www.mediacouncil.org.)

“Given all of these findings, the University of Delaware study concludes that this SSA has not resulted in improved coverage and more enterprising news content,” says UH’s Kato.

“If station owners are all going to start asking, ‘Why do we have to send two camera crews to the same news conference?’ who’s to say that tomorrow they won’t be asking, ‘Why can’t we just have shared coverage on election night?’ or maybe even, ‘Why do we have to have separate news programs? Why can’t we just have one newscast simulcast across all the stations in Hawaii?’ ”

New approach to news

In the old days (way back before, say, 2003), every local newsroom was focused on the next newscast. Today, unless they have an exclusive, reporters usually post first to the Web, social media and mobile devices.

KHON2 news director Lori Silva sees the Web not only as a tool for immediacy but also as a way to attract viewers to the newscast. “The hope is that what you put on your website, or on Twitter or Facebook, will pique viewers’ interest and that will draw them to your newscast for more in-depth coverage and video,” she says.

KITV news director Genie Garner says the station recently launched an iPad app and all reporters have iPhones and laptops that connect them to the Web and social media at all times. “Everyone in this newsroom has had to change the way they think,” she says. “The public doesn’t want to have to wait until the evening newscast anymore, so you always have to have good, accurate content available.”

A few years ago, broadcasters were unsure how the Web and social media would impact traditional TV, “but we’ve found that it all enhances the broadcast medium,” says KITV’s Jackson.

Blangiardi says HNN is quickly evolving into a multimedia company, but that his team, along with everybody else in the business, is still trying to uncover the secret to monetizing the Web.

Future of TV news

TV news stations across the country are doing more with less. “Everything is fast and furious these days,” KHON2’s Silva says. “When I started out (28 years ago), we had double the amount of reporters in the newsroom. Today, we have about six on any given day and they’re all working on a story for that night.”

To cut costs, some Mainland stations are shedding high-priced anchors, and stations everywhere, including in Hawaii, are sending reporters or camera people out alone more often to collect footage and news. Content is also changing in other ways. As in movies, individual clips and soundbites within a news item have become shorter, and UH’s Kato says more stories are purely for entertainment and contain little news value.

Stations across the nation have seen more viewers at nontraditional news timeslots, such as 4:30 a.m. and 7.p.m., so broadcasters are looking at these options for growth.

McNamara predicts TV news will become more interactive, allowing viewers to use their remotes to select a story from the newscast that they’d like to learn more about or even select the types of stories they want to hear. “Maybe one day we’ll be able to do instant polling using your remote,” he says.

Still, much of Hawaii’s TV-news future is riding on the FCC’s decision on HNN. If the FCC permits the SSA to continue, Kato and Conybeare fear it will lead to more media consolidations across the U.S.

Instead, Conybeare says, he would like the FCC to disallow the SSA and revoke the Hawaii licenses for HNN’s Mainland owners and put them up for auction.

“We know from national studies that local ownership provides the best local coverage of communities and I would hope that local owners would step up to the plate,” he says.

MCH is exploring the idea of creating a community-owned commercial TV station. “I envision a Hawaii entity raising capital from the community and leveraging this to purchase a broadcast station,” Conybeare says.

Blangiardi, on the other hand, is confident about the future for HNN and for local TV, in general.

“There are more opportunities than ever before to reach people over multiple platforms, so we’re excited. The future of Hawaii’s broadcast industry has never looked brighter.”

*Disclosure:
The author of this article, Hawaii Business writer Shara Enay, conducts interviews each Friday on KHON2’s morning news. She selects the subjects independently and writes her own scripts.

Where Americans Get Their News

Totals are more than 100 percent because some people use multiple sources to get their news

The Ratings Winner is…

The TV industry lives and dies by ratings, so everyone tries to put the best face on the numbers.

KGMB’s Sunrise Show and 10 p.m. newscast won the No. 1 spot in the February Nielsen ratings. KHON2 claimed the top spot for its 5 p.m. newscast, 5:30 p.m. World News Report and 6 p.m. newscast with Joe Moore. But, if you combine the ratings of the HNN stations, which Nielsen allows, HNN beats KHON2 in every time slot except 6 p.m., the most watched newscast of the day.

KITV, which is consistently third in the ratings, is the only station with an hourlong newscast at 10 p.m. as well as a weekend morning newscast, and news director Genie Garner says the station has been showing positive growth in key areas.

“In the beginning, our numbers actually went up a little bit,” McNamara says, adding that some viewers might have felt slighted when HNN began its simulcasts, which created “sampling” in the marketplace. “So, from our standpoint, I think we actually benefited from it.”

Numbers Game

Bragging Rights

Each of the stations trumpets the awards it wins.

HNN scooped up three national Emmy Awards and four Edward R. Murrow Awards last year for overall excellence, best newscast at 10 p.m., best continuing coverage and best hard-news reporting.

HNN news director Mark Platte, who is the former editor of The Honolulu Advertiser, says he’s also proud of his team for completing four 90-minute live campaign debates last year, more than any other local station; filming a two-hour live broadcast from Waikiki Beach to celebrate the launch of CBS’s “Hawaii 5-0” series; broadcasting their Sunrise Show live from Hilo for a week leading up to the Merrie Monarch Festival; and for “the most live reports and most extensive coverage in the wake of the Japan tsunami of any other station.”

Last year, KITV won two Emmy Awards for best evening newscast for a medium-size market for its 5 p.m. newscast and another for best informational/instructional feature. It also received six Excellence in Journalism Awards from the Society of Professional Journalists.

KHON2 picked up two Edward R. Murrow Regional Awards and is consistently one of the top 10 FOX affiliates in the country, says KHON2 news director Lori Silva.